Rising mortgage rates spark surge in overpayments

The data shows a surge in lump sum capital repayments between October and December last year.


Related topics:  Mortgages
Rozi Jones | Editor, Barcadia Media Limited
19th April 2023
a man looks at a coffee table covered with receipts and a calculator
"Growing mortgage debt means more people will be making repayments into their retirement, when most would prefer to be mortgage-free."

Rising mortgage rates prompted UK households to make an unprecedented £23.3bn of mortgage overpayments in 2022, equivalent to £64m per day, according to new figures from the Equity Release Council.

Its data shows that mortgage rates spiking in the wake of the mini-Budget prompted those able to do so to make lump sum payments and reduce their loan sizes to limit interest rate costs.

In Q4 2022 alone £6.7bn of overpayments were made, the highest quarterly figure on record, and a significant leap (14%) on Q3 where overpayments totalled £5.9bn. Having exceeded £5bn for the first time in Q4 2020, quarterly overpayments have now passed this measure for nine successive quarters and surged past £6bn for the first time ever in Q4 2022.

Despite the jump in overpayments, total mortgage debt also reached a new high of £1.6tn in December 2022. As a result, the nation’s regular mortgage payments passed £15bn per quarter for the first time in Q4 last year, up from £14.3bn in Q3.

The spike in overpayments during Q4 follows higher mortgage rates which gripped the market in the wake of the mini-Budget. People who could afford to do so took extra steps to make lump sum payments to reduce their loan sizes, looking to limit interest rate burdens in a high-rate environment. Data from the Moneyfacts UK Mortgage Trends Treasury Report shows the average two-year fixed rate leapt from 2.38% to 6.01% between January and December 2022, while the average five-year fix rose from 2.66% to 5.80%.

The upcoming Equity Release Council report also shows that the total value of private property in the UK grew to exceed £7.3trn in 2022, ending the year 7% higher than in December 2021. In the same period, net property wealth reached £5.6trn, or £228,300 per household, an 8% increase. These year-on-year increases were affected by falling house prices in the year’s final quarter but reflect broader trends driving higher property values across the year.

Jim Boyd, CEO at the Equity Release Council, said: “Growing mortgage debt means more people will be making repayments into their retirement, when most would prefer to be mortgage-free. This comes at a time when the cost-of-living crisis has added almost 20% to the ‘minimum’ cost of retirement, with many pensioners’ average income leaving them short of a moderate or even minimum level of comfort.

“In this environment, access to a range of later life lending products and comprehensive advice is more important than ever to help people fund their desired lifestyle in retirement. We are approaching the next wave of residential interest-only mortgages reaching maturity within the next five years, when many people will face a choice between borrowing for longer or selling up. As an industry, we need to be braced to support these homeowners to have the best retirement they possibly can, which for some will mean using flexible lifetime mortgages to remain in their homes.

“Equity release is not a silver bullet solution, but it should always be part of these important discussions. For the right person, at the right time, it has the potential to be a positive and life-changing decision. Using an adviser that is a member of the Equity Release Council will ensure potential customers are protected by our rigorous standards and prompted to weigh up all their options.”

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